To begin, I applaud Paul Krugman for stepping out of the moral and political zone. Stiglitz is clutching to ideals, especially one particularly worrying one that is pervasive in modern western culture "we should" vs. "we can." I agree that the Bush Administration was wasteful in spending on wars and tax cuts, but by comparing the Afghanistan and Iraq wars, which were propagandized to the American people as out of "moral duty" to respond to 9/11 and "promote democracy," Stiglitz brings up an argument of whose morals deserve more importance. In this case I agree with his conclusion, but not in his argument. Blaming globalization for loss of union strength is a bit unfair to firms. Stiglitz compares unions and social protection systems in the United States to those in Germany. He does not mention that these two groups existed in Germany long before they were present in the United States. While many of our social protection systems were created as part of FDR's New Deal to recover from the Great Depression, social protection in Germany collapsed because of the Great Depression, sending German youth running to the right (NSDAP) and left (KPD), each a party with unwavering moral ideals. The real threat in America is the moralization of politics and economic decision making, not inequality. I apologize for the length and meandering nature of this post.
Both Stiglitz and Krugman accept the belief that inequality is a contributing factor in constraining the economy’s recovery, yet there exists a discrepancy between the two in terms of the mechanisms by which inequality works to inhibit recovery. Stiglitz and Krugman are in agreement that the inability of children from impoverished households to gain an education and therefore reach their full potential is creating a roadblock to recovery. Additionally, the two can agree that the current high inequality accompanies an exaggerated “boom-and-bust” cycle that is characteristic of an unstable economy. The two diverge on the issue of whether private saving by the top 1% is substantially lowering consumer spending as a whole and is therefore thwarting economic recovery. Stiglitz provides a rational argument detailing how in the absence of the bottom and middle classes providing ~80% of consumption during this recession the tendency of the top 1% to save is negatively affecting consumption as a whole and thus impeding recovery. However, Krugman is able to provide data on overall private saving as a share of GDP before and throughout the recession, enabling him to flip Stiglitz’s argument on its head. Krugman’s data shows a drop in private saving in the years preceding the recession followed by an explosive increase that began at the start of the recession and continued throughout. Since personal saving drops as inequality increases, the spike in personal saving during the recession therefore suggests inequality has been decreasing throughout the recession, thereby disproving Stiglitz’s argument. Krugman’s ability to solidify his line of reasoning with data allows him to negate divergent claims effectively and in few words.
I agree with what Locke and Barb had to say, those are both insightful blogs that bring up good points about the articles. Stiglitz and Krugman are two well accomplished economists and it is hard to disagree with what they had to say, but I would like to comment on one idea that they both share.They both write their articles with the idea that the American dream is gone, and Stiglitz in fact says that "the American dream — a good life in exchange for hard work — is slowly dying." I do not completely agree with this. I believe that the opportunity is there, but that Americans these days just do not want to work as hard as they used to. The American dream has turned into just that, a dream, and people aren't willing to turn it into reality.Although this is easy for me to say because I have the opportunity to go to Washington and Lee and thus a better shot at a job than most people, I do believe that hard work does pay off. Kids and students that don't have the kind of opportunity I have still have the ability to go places in life, they might have to hustle more and work a little harder than me, but their hard work will be noticed eventually.
I would like to address a point mentioned in Stiglitz's article. He rightly talks on how history repeats itself in economics, stating that "The International Monetary Fund has noted the systematic relationship between economic instability and economic inequality, but American leaders haven’t absorbed the lesson." America's economy has been through several stages of growth and recession in its history, and I believe that current policymakers refuse to pick up on that. For instance, creating a freer market, lower taxes, and a balanced budget helped to end the Great Depression. Why would politicans and economists alike not want to implement those same tactics and legislations on the market today?
I would like to comment on Johnny’s post. I agree with Johnny that the American dream still exists, but disagree with him saying that “Americans these days just do not want to work as hard as they used to.” I believe the American dream exists but is becoming harder to achieve due to the magnitude and nature of inequality in America. Education, “the only sure way to move up”, is becoming more and more costly to receive. There are many children who are working very hard in America, but are unable achieve the American dream. Some reasons why these children are unable to achieve the American dream are high education costs, existing debt, and the inability take on unpaid internships to beef up their resumes. While opportunities to overcome these inequalities such as scholarships exist, there are not nearly enough of these opportunities to make sure every hard-working American can achieve the American dream. The magnitude of the inequality in America continues to increase, some opportunities will still exist but overall there will be a smaller chance of achieving the American dream. This is a problem that will not go away.
Krugman's point that "economics is not a morality play" is what stuck with me the most in my readings of these two articles. Stiglitz attempts to argue about adjusting the fairness of our economy. While he is right in saying that inequality causes most of our economic downturns, he is wrong when he says that the inequality can be fixed by building from the bottom up. Stiglitz has the traditionally liberal view on our economy, which involves increased government spending in order to help those with lesser opportunities. He believes in Obama's investing in education and training for those who cannot receive it. While his ideas are what seem to be best, they make the least amount of sense economically. Those people attempting to move from the unskilled labor market to a more skilled market through education are only making it harder for themselves. The entire country cannot be fighting for college-grad level jobs at the same skill level. There will always be those people that invested four years in their education to only become unskilled workers. There simply aren't enough resources available for every single young person to be educated. Stiglitz and Krugman's view on the American dream is also interesting. My view is that maybe the American dream has died because of people like Stiglitz. Those who hope to invest in "those at the bottom" to promote fairness and equality, only take away work incentive and hurt the economy. Inequality is inevitable in a capitalist society like ours, which Krugman seems to accept. Certain ways of living may be unfair, but there is no way to completely erase the gap without taking away from those who also deserve it.
I think Stiglitz makes some really good points, and the inequality in this country is absolutely a hindrance to the American dream, however he sticks too strictly to broader political principles and ignores some of the more present issues. I think Krugman really took a bold stance in disagreeing (albeit very respectfully) with his fellow liberal economist. I think an important point to make is that while Stiglitz falls short in a number of ways, as Krugman points out, that shouldn't invalidate his bigger argument. Inequality does create certain problems, even if they are not so simply described by actual data. One of the biggest problems with only looking at data is that sometimes problems are more about culture than money. For example, a hindrance to the "American Dream" that the data doesn't show is the mindset that disparity between classes causes in lower income areas. People are not working less hard than they used to, the attitude has simply changed. There used to be the belief that hard work would lead to success. People were optimistic about their opportunities for social mobility. Nowadays, this attitude is gone. People feel as though real success is unattainable and there is animosity between classes. I think Krugman is right to say that this isn't in and of itself holding our economic recovery back, but at the same time inequality does play an important roll in our economic progression.
I don't completely agree with Stiglitz's assertion that "the American dream — a good life in exchange for hard work — is slowly dying." however, I can see why he is worried about this happening and If we do not focus efforts now, this could become a reality. The two main ideas I have always seen play into achieving the American dream are education and hard work. Stiglitz brings up the point that our middle class is suffering the most here--they are "too weak to support the consumer spending that has historically driven our economic growth." America relies on it's middle class to drive the economy and if they aren't spending money, then the economy will not be stimulated and this will create an even larger disparity between the upper and lower class. Stiglitz also talks about education for the middle class, saying the upper class can afford to go to college, have unpaid internships, build their resume and such but the middle class cannot. This creates more of an inequality, but what can we do? I agree we need significant investments in education because I believe that education is first and foremost the way to lead people into a better life. However, this education does not necessarily need to focus on a college education. While I believe everyone should be entitled to an upper level education if they choose to work hard to achieve one, not everyone wants an upper level education and it is up to Americans to focus on education of all levels, such as trade schools and vocational programs which could assist the middle class much more than an advanced degree in art history.
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Although some of my classmates may disagree, I think that both Stiglitz and Krugman bring up a pressing issue when they recognize that the so-called "American Dream" may be a concept that is no longer true. Despite disagreeing about the ways inequality contributes to lack of economic growth, both economists indicate that children of middle class families are receiving the short end of the stick because their parents cannot afford to provide the type of education that would help them reach their full potential. More than any other idea discussed, this issue troubled me the most. My classmate mentioned "Americans these days just do not want to work as hard as they used to. The American dream has turned into just that, a dream, and people aren't willing to turn it into reality." On some level I do agree that there are young people out there that are not willing to put forth the hard work to succeed, but I view this circumstance as an exception. There are many children out there that are simply unable to attain an adequate education, but wished they had the opportunity to do so and would go much farther in life if they had the chance. Policy makers should focus on improving education for our youth and the education system should work towards helping more underprivileged children have access to schooling. The "American Dream" is something that is definitely harder to come by and it seems like in most cases lack of opportunity (not lack of effort) is the reasoning behind this.